Monday, November 19, 2007

Get out of the Market NOW!!!!!!!!!!!!!!!!!!!!!

TOKYO, Nov 20 (Reuters) - Japanese Economics Minister Hiroko Ota said on Tuesday the government has no plan to set up measures to support stock prices for now.

Not many have access to the Fed meeting minutes. Only those the Fed wants on the same page. It is the federal Reserves position that the way to save the financial institutions from real collapse is to encourage them to shore up their balance sheets with real money. The fed wants the mortgage companies and the bond insurers to shop for REAL capital. The type of real money needed to shore off a credit rating down turn. It is in the interest of the country to have the monopoly money that stocks are traded with to wither away.

The shit will hit the fan at 2:15 on Tuesday. SELL EVERYTHING

Inverted Yield Curve

Scared money is controlling rates. Not good

Yeilds for today, yesterday, last week and a month ago

2 Year 3.16 3.33 3.40 3.77
3 Year 3.06 3.24 3.36 3.78

Wednesday, November 07, 2007


WASHINGTON (AP) -- Mortgage application volume fell 1.6 percent during the week ending Nov. 2, according to the trade group Mortgage Bankers Association's weekly mortgage applications survey released Wednesday....

The average interest rate for one-year adjustable-rate mortgages increased to 5.94 percent from 5.93 percent a week earlier.

Click on the heading for the rest of the article

Mortgage rates are partially determine by supply and demand. If demand falls the need to lend out the money becomes more competitive and rates fall. Of course there are many other factors. The Fed has some say in rates by encouraging banks to borrow from them and pump money into the ten year notes. Which they have done. So if both demand has fallen and the feds have dropped the intra-bank rate why would mortgage rates go up?

Oil is at an all time high. Trucks get 4 miles to the gallon. Cement is made by cooking lime at 3,000^F, polyester fabric is petroleum based. The list goes on and on. INFLATION OF THE COST TO PRODUCE AND SELL GOODS IS ABOUT TO ROAR TO LIFE. The Feds are now officially backed into a corner. Future rate cuts don't look good. Might even see the more stable economies in the world raise their rates.

Thursday, October 18, 2007

Bernanke's Speech

Chairman Ben S. Bernanke
At the Economic Club of New York, New York, New York
October 15, 2007

As I indicated in earlier remarks, it is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect lenders and investors from the consequences of their financial decisions...

Indeed, although the Federal Reserve can seek to provide a more stable economic background that will benefit both investors and non-investors, the truth is that it can hardly insulate investors from risk, even if it wished to do so. Developments over the past few months reinforce this point. Those who made bad investment decisions lost money. In particular, investors in subprime mortgages have sustained significant losses, and many of the mortgage companies that made those loans have failed. Moreover, market participants are learning and adjusting--for example, by insisting on better mortgage underwriting and by performing better due diligence on structured credit products. Rather than becoming more crisis-prone, the financial system is likely to emerge from this episode healthier and more stable than before...

click on title for the rest of the speech

Thursday, October 11, 2007

How to prevent a rout of the declining dollar

By Jeffrey Garten

Published: October 10 2007 19:53 | Last updated: October 10 2007 19:53

When Hank Paulson, US Treasury secretary, says the US believes in a strong dollar, he is merely repeating an empty mantra, for the Bush administration continues to rely almost entirely on an ever weakening dollar as the central thrust of its international economic policy.

When a European leader such as Jean-Claude Juncker, chairman of the group of 13 eurozone ministers, publicly demands discussions of the soaring euro at the upcoming Group of Seven industrial nations meeting in Washington, he is just venting his frustration, for it has been decades since the G7 accomplished anything on currency misalignments.

The fact is, words hardly matter in today’s gigantic marketplace. Only action does.

Leaders are behaving like deer caught in the headlights. Yet some action is crucial now because the dollar’s orderly retreat could at any time change into a chaotic rout, given the uncertainties and anxieties in today’s markets. The danger is enhanced as every sign – financial, economic and political – points to a dollar that will continue to drop, making a bet on a weaker dollar nearly a risk-free proposition.

Moreover, while the Bush administration exalts the export stimulus from a weakening dollar, the overall effect of continuous devaluation will be highly detrimental to America. It will be inflationary, because it will raise the price of imports, including oil and other commodities. At a time when the US needs to borrow $2bn (€1.4m) (£979m) a day to finance its current account deficits, a depreciating dollar will act as a disincentive to foreign investment in US government securities unless American interest rates are raised. A weakened greenback will also expose US industries to foreign takeovers at bargain basement prices. Admittedly, conflicting interests among countries make any grand scheme, such as the Plaza Accord that realigned and stabilised currencies in 1985, a non-starter. There are, however, at least four moves that finance ministers and central bankers should make soon.

At an opportune moment, they could make a sharp and powerful co-ordinated intervention in the currency markets to buy dollars. This surprise move would not change long-term trends, but it would show speculators that shorting the dollar is not always without consequence. The intervention could therefore bolster prospects for an orderly dollar decline and demonstrate that the US and the European Union are capable of jointly using powerful policy levers.

Next, the US could temporarily turn off its relentless pressure on Beijing to revalue the renminbi (and thereby further weaken the dollar). Over the long term, a floating Chinese currency is important, but for now a stronger renminbi adds petrol to a raging fire. Instead, discussions with the Middle Kingdom need to focus on something else: what stabilising role should China play if there were a major currency crisis?

Third, the US needs to be prepared for a large increase in foreign acquisitions. While protectionism would be a disaster, allowing many of the new, cash-laden foreign government investors in the Persian Gulf and Asia to use America as a bargain basement would itself result in a nasty nationalistic reaction. US Treasury officials should be confidentially talking now to the big sovereign wealth funds to develop a mutual understanding of some US rules concerning transparency, maximum ownership percentages and sectoral sensitivities. The aim: to facilitate investment in a highly charged political environment.

None of these measures deals with important longer-term questions. That is why the Bank for International Settlements ought quietly to undertake a thorough examination of the future of the dollar in the international economy. With the growing power of the euro, the escalating importance of London as a global financial centre, the inevitability of the renminbi becoming a big global currency and the long-term deficits and foreign debts America faces in financing a burgeoning social safety net and massive military burdens, it is unlikely that the dollar will remain as central to global commerce as it has been for more than half a century. It is too late for the lame-duck Bush team to care about this, but in 2009 a new US administration – not to mention the rest of the world – should have great interest in the results of this project.

The writer is the Juan Trippe professor of international trade and finance at the Yale School of Management

Copyright The Financial Times Limited 2007

Dollar tumbles against euro on ECB rate speculation

NEW YORK (AFP) - The dollar tumbled heavily against the euro Thursday as speculation grew that the European Central Bank may lift its benchmark interest one more time between now and the end of the year.

The euro surged to 1.4195 dollars at 2100 GMT, up from 1.4145 dollars late Wednesday in New York.

The single European currency, however, had earlier jumped to 1.4240 dollars, just shy of its record 1.4283 struck on October 1.

Traders said the euro largely drew fuel from a series of hawkish comments by European Central Bank (ECB) officials.

ECB president Jean-Claude Trichet reiterated that economic growth in the eurozone remained robust and that inflation was subject to upside risks.

His comments sparked renewed speculation that the ECB could be gearing up to hike rates against expectations of lower interest rates in the United States, which have served to apply downward pressure on the dollar.

Speculators generally prefer to invest in countries or regions where interest rates are higher so they can reap better returns on their currency bets.

"The US dollar remains quite weak as the currency markets remain full of dollar bears," Rob Giannone, a PNC currency analyst, said in a briefing note.

"The bulk of economic weakness and expectations for interest rate cuts are already priced into the dollar," he said.

The dollar meanwhile fetched 117.27 yen compared with 117.22 a day earlier and after the Bank of Japan opted to leave interest rates unchanged at 0.50 percent Thursday.

Japanese interest rates are the lowest among industrialized nations and have encouraged investors to borrow yen and invest the funds in other high-yielding currencies elsewhere. Sound Familar?

These transactions, known as carry trades, have weakened the yen, however.

"The risk appetite has rebounded and people are back to yen-funded carry trades," said Callum Henderson, head of currency strategy at Standard Chartered Bank in Singapore.

The dollar was unable to take advantage of two improved economic reports.

The Labor Department reported a fall in first-time claims for unemployment insurance last week to their lowest point in the third quarter, 308,000, down 12,000 from the prior week.

And the government said the US trade deficit narrowed more than expected in August to 57.6 billion dollars, marking its lowest reading in seven months as exports offset higher oil import prices.

In late New York trade, the dollar stood at 1.1819 Swiss francs from 1.1827 Wednesday.

The FAT LADY sings at American Express

Lets see...

1) We have a reduction in spending of frivoless imported crap like trendy clothing because the house is no longer an ATM.

2) Increase output and exportation of real goods like trains planes and automobles.

3) Better than expected employment figures

4) Retailor like Walmart some how pull through this and raise earnings despite falling sales.

Wow!!! If the only current causalty since the last FED meeting are credit card companies who lives are based on frivoless consumption, should the rest of America be obligated to subsidise an industry where the employees all make multiple folds times the average American worker. Tax those with nothing and give it to the rich so the rich can be richer? AND YES A GUTTING OF THE INTRA-BANK RATE IS DESIGN TO DO THAAT BY INFLATING OUR COST OF SURVIVAL, INFLATING THE REAL COST OF BORROWING MONEY FOR CARS, HOUSES, AND OTHER GOODS ALL SO A BANKER CAN BORROW DIRECTLY FROM OUR GOVERNMENT AT A LOW RATE AND THEN LOAN THAT MONEY BACK TO ANOTHER GOVERNMENT LIKE CANADA OR GERMANY AT A HIGHER RATE. The money is not coming back to the people. We have proven that with the rise in long term rates over the past month that are going through the roof as the Treasury balance a budget that is fuck up with some help by the Federal Reserve and a President that believes if you deflate the dollar day after day year after year idiots will still want the dollar.

There is no FUCKING way in hell the rates are being cut again.

WASHINGTON (AP) -- The U.S. trade deficit fell to the lowest level in seven months, helped by record-high sales of American products and the declining value of the dollar. The deficit with China declined as imports edged down slightly following a string of high-profile recalls.
The Commerce Department reported Thursday that the deficit declined to $57.6 billion in August, down 2.4 percent from the July imbalance. It was lowest gap between exports and imports since January and a much better showing than had been expected.

The improvement reflected a 0.4 percent rise in exports, which climbed to a record $138.3 billion. Sales of farm products including wheat, soybeans and corn, and exports of industrial products such as chemicals and steel both hit record levels.

Imports actually dropped by 0.4 percent to $195.9 billion, reflecting lower shipments of foreign cars and furniture, which offset a big increase in the foreign oil bill, which rose to the highest level in a year.

In other economic news, the Labor Department said that the number of newly laid off workers filing claims for unemployment benefits fell by 12,000 last week to 308,000. That was a better showing than had been expected.

The nation's big chain retail stores reported disappointing results in September as lingering summer weather and the severe housing slump dampened consumers' desire to shop. The biggest losers included apparel sellers. Wal-Mart Stores Inc. reported a modest sales gain, but the increase was below analysts' expectations.

The politically sensitive trade deficit with China fell by 5.3 percent to $22.5 billion. U.S. exports were up, led by increased sales of aircraft and soybeans, while imports slipped a slight 0.7 percent. The decline in imports occurred after a series of recalls of tainted products from toys with lead paint to toothpaste and unsafe tires.

However, the small drop came in such areas as computers and furniture, where there have not been highly publicized recalls. Imports of toys from China actually rose as American retailers stocked their shelves for Christmas.

The boom in U.S. exports is helping to cushion the U.S. economy from the adverse effects of the housing bust and a severe credit crunch. Overseas demand for U.S. goods is being helped by a falling value of the dollar against many other currencies. That development pushes up the cost of foreign vacations and imports for American consumers but makes U.S. products cheaper in foreign markets.

Through the first eight months of this year, the trade deficit is running at an annual rate of $708 billion, down 6.7 percent from last year's imbalance of $758.5 billion, which had been the fifth consecutive record deficit.

President Bush's critics still contend that his trade policies have been harmful to the United States, resulting in record-high deficits for most of his time in office and contributing to the loss of 3 million manufacturing jobs since January 2000.

Trade critics have focused their unhappiness on China, where the deficit is on track to set another record, running at an annual rate of $246 billion. That would be the largest imbalance ever recorded for a single country.

Lawmakers are pushing a variety of bills that would punish China for what they see as unfair trade practices such as manipulating its currency to keep its value low against the dollar as a way of boosting Chinese imports and making it harder for American companies to sell their products in China.

The Bush administration, led by Treasury Secretary Henry Paulson, contends that such measures would be counterproductive, prompting China to retaliate against American goods. They argue that high-level diplomatic talks offer the best chance of resolving trade differences between the two nations.

For August, America's foreign oil bill rose by 0.8 percent to $27.5 billion, the highest level since last August. The average price for a barrel of imported crude oil jumped to a record high of $68.09. Analysts are predicting that figure will climb higher in coming months given that oil prices have recently hit all-time highs above $80 per barrel.

America's trade deficit with Mexico jumped 23.6 percent to a record of $6.9 billion while the deficit with Canada, the country's biggest trading partner, edged down 6.6 percent to $5.3 billion. The deficit with the European Union fell by 21.1 percent to $10.2 billion while the imbalance with Japan dropped 16 percent to $6.7 billion.

Tuesday, October 09, 2007

Federal REserve Meeting Minutes

Last time when everyone else claimed the FEDs were not going to lower rates next time. I only said they would, and they did. This time the market rally because the FED minutes suggest rates will drop again. I don't see that. What you have to do is read their concerns. If time cleanses their concern then there will be no rate cut.

In the agenda for this meeting, it was reported that advices of the election of Charles L. Evans as a member of the Federal Open Market Committee had been received and that he had executed his oath of office.

By unanimous vote, the Federal Open Market Committee selected James A. Clouse and Daniel G. Sullivan to serve as Associate Economists until the selection of their successors at the first regularly scheduled meeting of the Committee in 2008.

The Manager of the System Open Market Account (SOMA) reported on recent developments in foreign exchange markets. There were no open market operations in foreign currencies for the System's account in the period since the previous meeting. The Manager also reported on developments in domestic financial markets and on System open market operations in government securities and federal agency obligations during the period since the previous meeting. By unanimous vote, the Committee ratified these transactions.

The information reviewed at the September meeting suggested that economic activity advanced at a moderate rate early in the third quarter. After expanding at a robust pace in July, retail sales rose at a somewhat slower rate in August. Orders and shipments of capital goods posted solid gains in July. However, residential investment weakened further, even before the recent disruptions in mortgage markets. In addition, private payrolls posted only a small gain in August, and manufacturing production decreased after gains in the previous two months. Meanwhile, core inflation rose a bit from the low rates observed in the spring but remained moderate through July.

Private nonfarm payroll employment rose only modestly in August, and the levels of employment in June and July were revised down. The weakness in employment was spread fairly widely across industries. Residential construction and manufacturing posted noticeable declines in jobs, employment in wholesale trade and transportation was little changed, and hiring at business services was well below recent trends. Both the average workweek and aggregate hours were unchanged in August. The unemployment rate held steady at 4.6 percent, 0.1 percentage point above its second-quarter level and equal to its 2006 average.

After posting solid gains in June and July, total industrial production edged up only a bit in August. This increase was attributable to a surge in electricity generation, as temperatures swung from mild in July to very warm in August. After large gains in the preceding two months, manufacturing output declined in August, held down by a decrease in the production of motor vehicles and parts. High-tech output rose only modestly in August, but production gains in June and July were revised up considerably.

Consumer spending appeared to have strengthened early in the summer from its subdued second-quarter pace. Although auto sales were weak in July, real outlays for other goods rose briskly. At the same time, spending on services was up moderately despite a drop in outlays for energy associated with relatively cool weather in the eastern part of the United States. In August, consumption appeared to have posted another solid gain. Although nominal retail sales outside the motor vehicle sector were about flat (abstracting from a drop in nominal sales at gasoline stations associated with falling gas prices), vehicle sales stepped up and warmer weather likely caused an increase in energy usage. Real disposable income rose further in July, as wages and salaries posted a strong gain and energy prices came down. However, household wealth likely was providing a diminishing impetus to the pace of spending, reflecting recent declines in stock market wealth and an apparent further deceleration in house prices. Readings on consumer sentiment turned down in August after having risen in July, and the Reuters/Michigan index remained near its relatively low August level in early September.

The housing sector remained exceptionally weak. Home sales had dropped considerably this year: Sales of new and existing single-family homes in July were down substantially from their averages over the second half of last year. Demand was restrained by deteriorating conditions in the subprime mortgage market and by an increase in rates for thirty-year fixed-rate conforming mortgages. In the nonconforming mortgage market, the availability of financing to borrowers recently appeared to have been crimped even further. Most forward-looking indicators of housing demand, including an index of pending home sales, pointed to a further deterioration in sales in the near term. Single-family starts slid in July to their lowest reading since 1996, and adjusted permit issuance continued on a downward trajectory. Although single-family housing starts had come down substantially from their peak, the drop had lagged the decline in demand, and as a result, inventories of new homes had risen considerably. In the multifamily sector, starts in July were in line with readings thus far this year and at the low end of the fairly narrow range seen since 1997. Meanwhile, house prices generally continued to decelerate.

Orders and shipments of capital goods posted a strong gain early in the third quarter. In particular, orders and shipments of equipment outside the high-tech and transportation sector registered a robust increase in July, and data on computer production and shipments of high-tech goods pointed to solid increases in business demand for high-tech. In contrast, indicators of spending for transportation equipment were mixed. Aircraft shipments in July and public information on Boeing's deliveries suggested that domestic spending on aircraft was retreating somewhat in the current quarter. While fleet sales of light vehicles appeared to have moved up in July and August, sales of medium and heavy trucks remained below the second-quarter average. More generally, surveys of business conditions suggested that increases in business activity were somewhat slower in August than in the second quarter.

Book-value data for the manufacturing and trade sectors excluding motor vehicles and parts suggested that inventory accumulation stepped down noticeably in July from the second-quarter pace. Inventories of light motor vehicles rose again in July and August. The number of manufacturing purchasing managers who viewed their customers' inventory levels as too low in August slightly exceeded the number who saw them as too high.

The U.S. international trade deficit narrowed slightly in July, as exports increased more than imports. Sharp increases in exports of both aircraft and automobiles contributed importantly to the overall gain. Exports of agricultural products and consumer goods were also strong. In contrast, exports of industrial supplies and semiconductors exhibited declines. The value of imported goods and services was boosted by a large increase in imports of automotive products. Higher imports of capital goods excluding aircraft, computers, and semiconductors and of oil also contributed to the overall gain in imports.

Economic growth slowed in the second quarter in most advanced foreign economies, except the United Kingdom. The step-down was most pronounced in Japan, where GDP contracted, but was also substantial in the euro area, where total domestic demand rose only slightly. Although growth remained robust in Canada, data late in the quarter, including retail sales, indicated a more significant weakening in activity. This softness appeared to have continued into the third quarter in some economies. In July, indicators for Europe generally moderated, on balance, from their second-quarter levels; those for Canada and Japan, however, slowed more notably. Most of the readings available on economic developments after August 9, when financial turmoil intensified, were measures of confidence. They dropped, on average, but otherwise were consistent with the indicators reported for July.

Data through July suggested that economic activity in emerging-market countries remained robust. Output in the Asian economies soared in the second quarter, and several countries posted growth at or near double-digit rates. In Latin America, output in Mexico and Venezuela rebounded sharply from earlier weakness. Indicators for China in July pointed to only a modest slowing of output growth from its torrid pace in the first half of the year. The scant data for August received thus far provided little indication that the turmoil in financial markets had a significant negative impact on real economic activity in emerging-market economies.

After rapid price increases earlier this year, U.S. headline consumer price inflation was moderate in both June and July. Although food prices continued their string of sizable increases, energy prices fell in June and July and gasoline prices appear to have dropped further in August. Core PCE prices rose 0.2 percent in June and 0.1 percent in July. On a twelve-month-change basis, core PCE inflation in July was below the comparable rate twelve months earlier. Step-downs in price inflation for prescription drugs, motor vehicles, and nonmarket services accounted for nearly all of the deceleration in core PCE prices. Although owners' equivalent rent decelerated over the past year, this change was largely offset by an acceleration in tenants' rent and lodging away from home. Household surveys indicated that the median expectation for year-ahead inflation declined in August and edged down further in early September to a level only slightly above the reading at the turn of the year; the median expectation of longer-term inflation in early September remained in the range seen over the past couple of years. The producer price index for core intermediate materials rose only modestly in July. Compensation per hour decelerated in the second quarter. Nonetheless, the increase over the four quarters ending in the second quarter was noticeably above the increase in the preceding four quarters and well above the rise in the employment cost index over the same period.

At its August meeting, the FOMC decided to maintain its target for the federal funds rate at 5-1/4 percent. In the statement, the Committee acknowledged that financial markets had been volatile in recent weeks, credit conditions had become tighter for some households and businesses, and the housing correction was ongoing. The Committee reiterated its view that the economy seemed likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy. Readings on core inflation had improved modestly in recent months. However, a sustained moderation in inflation pressures had yet to be convincingly demonstrated. Moreover, the high level of resource utilization had the potential to sustain these pressures. Although the downside risks to growth had increased somewhat, the Committee repeated that its predominant policy concern remained the risk that inflation would fail to moderate as expected. Future policy adjustments would depend on the outlook for both inflation and economic growth, as implied by incoming information. The FOMC's policy decision and the accompanying statement were about in line with market expectations, and reactions in financial markets were muted.

In the days after the August FOMC meeting, financial market participants appeared to become more concerned about liquidity and counterparty credit risk. Unsecured bank funding markets showed signs of stress, including volatility in overnight lending rates, elevated term rates, and illiquidity in term funding markets. On August 10, the Federal Reserve issued a statement announcing that it was providing liquidity to facilitate the orderly functioning of financial markets. The Federal Reserve indicated that it would provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the target rate of 5-1/4 percent. The Federal Reserve also noted that the discount window was available as a source of funding.

On August 17, the FOMC issued a statement noting that financial market conditions had deteriorated and that tighter credit conditions and increased uncertainty had the potential to restrain economic growth going forward. The FOMC judged that the downside risks to growth had increased appreciably, indicated that it was monitoring the situation, and stated that it was prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets. Simultaneously, the Federal Reserve Board announced that, to promote the restoration of orderly conditions in financial markets, it had approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent. The Board also announced a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as thirty days, renewable by the borrower. In addition, the Board noted that the Federal Reserve would continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets, while maintaining existing collateral margins. On August 21, the Federal Reserve Bank of New York announced some temporary changes to the terms and conditions of the SOMA securities lending program, including a reduction in the minimum fee. The effective federal funds rate was somewhat below the target rate for a time over the intermeeting period, as efforts to keep the funds rate near the target were hampered by technical factors and financial market volatility. In the days leading up to the FOMC meeting, however, the funds rate traded closer to the target.

Short-term financial markets came under pressure over the intermeeting period amid heightened investor unease about exposures to subprime mortgages and to structured credit products more generally. Rates on asset-backed commercial paper and on low-rated unsecured commercial paper soared, and some issuers, particularly asset-backed commercial paper programs with investments in subprime mortgages, found it difficult to roll over maturing paper. These developments led several programs to draw on backup lines, exercise options to extend the maturity of outstanding paper, or even default. As a result, asset-backed commercial paper outstanding contracted substantially. Investors sought the safety and liquidity of Treasury securities, and yields on Treasury bills dropped sharply for a period; trading conditions in the bill market were impaired at times. Meanwhile, banks took measures to conserve their liquidity and were cautious about counterparties' exposures to asset-backed commercial paper. Term interbank funding markets were significantly impaired, with rates rising well above expected future overnight rates and traders reporting a substantial drop in the availability of term funding. Pressures eased a bit in mid-September, but short-term financial markets remained strained.

Conditions in corporate credit markets were mixed. Investment- and speculative-grade corporate bond spreads edged up; they were near their highest levels in four years, although they remained far below the peaks seen in mid-2002. Investment-grade bond issuance was strong in August as yields declined, but issuance of speculative-grade bonds was scant. Speculative-grade bond deals and leveraged loans slated to finance leveraged buyouts continued to be delayed or restructured. Bank lending to businesses surged in August, apparently because some banks funded leveraged loans that they had intended to syndicate to institutional investors and perhaps because some firms substituted bank credit for commercial paper. Although markets for nonconforming mortgages were impaired over the intermeeting period, the supply of conforming mortgages seemed to have been largely unaffected by recent developments. Broad stock price indexes were volatile but about unchanged, on net, over the intermeeting period. The foreign exchange value of the dollar against other major currencies fell, on balance.

Investors appeared to mark down significantly their expected path for the federal funds rate during the intermeeting period, evidently in response to the strains in money and credit markets and a few key data releases, including weaker-than-expected reports on housing activity and employment. Yields on nominal Treasury securities fell appreciably across the term structure. TIPS-based inflation compensation at the five-year horizon was about unchanged, while inflation compensation at longer horizons crept higher.

Growth of nonfinancial domestic debt was estimated to have slowed a little in the third quarter from the average pace in the first half of the year. The deceleration in total nonfinancial debt reflected a projected slowdown in borrowing across all major sectors of the economy excluding the federal government. Although it decelerated in the third quarter, business-sector debt continued to advance at a solid pace, boosted by a surge in business loans. In the household sector, mortgage borrowing was estimated to have slowed notably, as mortgage interest rates moved up, nonconforming mortgages became harder to obtain, and as home sales slowed and house prices decelerated. M2 increased at a brisk pace in August. The rise was led by a surge in liquid deposits and in retail money funds as investors adjusted their portfolios in response to the turmoil in financial markets.

In preparation for this meeting, the staff continued to estimate that real GDP increased at a moderate rate in the third quarter. However, the staff marked down the fourth-quarter forecast, reflecting a judgment that the recent financial turbulence would impose restraint on economic activity in coming months, particularly in the housing sector. The staff also trimmed its forecast of real GDP growth in 2008 and anticipated a modest increase in unemployment. Softer demand for homes amid a reduction in the availability of mortgage credit would likely curtail construction activity through the middle of next year. Moreover, lower housing wealth, slower gains in employment and income, and reduced confidence seemed likely to restrain consumer spending in 2008. Despite the recent difficulties in some corporate credit markets, financial conditions confronting most nonfinancial businesses did not appear to have tightened appreciably to date. But going forward, the staff anticipated that businesses would scale back their capital spending a touch in response to financing conditions that were likely to become a little less accommodative and to more modest gains in sales. With credit markets expected to largely recover over coming quarters, growth of real GDP was projected to firm in 2009 to a pace a bit above the rate of growth of its potential. Incoming data on consumer price inflation that were slightly to the low side of the previous forecast, in combination with the easing of pressures on resource utilization in the current forecast, led the staff to trim slightly its forecast for core PCE inflation. Headline PCE inflation, which was boosted by sizable increases in energy and food prices earlier in the year, was expected to slow in 2008 and 2009.

In their discussion of the economic situation and outlook, meeting participants focused on the potential for recent credit market developments to restrain aggregate demand in coming quarters. The disruptions to the market for nonconforming mortgages were likely to reduce further the demand for housing, and recent financial developments could well lead to a more general tightening of credit availability. Moreover, some recent data and anecdotal information pointed to a possible nascent slowdown in the pace of expansion. Given the unusual nature of the current financial shock, participants regarded the outlook for economic activity as characterized by particularly high uncertainty, with the risks to growth skewed to the downside. Some participants cited concerns that a weaker economy could lead to a further tightening of financial conditions, which in turn could reinforce the economic slowdown. But participants also noted that the resilience of the economy in the face of a number of previous periods of financial market disruptions left open the possibility that the macroeconomic effects of the financial market turbulence would prove limited.

Although financial markets were expected to stabilize over time, participants judged that credit markets were likely to restrain economic growth in the period ahead. Given existing commitments to customers and the increased resistance of investors to purchasing some securitized products, banks might need to take a large volume of assets onto their balance sheets over coming weeks, including leveraged loans, asset-backed commercial paper, and some types of mortgages. Banks' concerns about the implications of rapid growth in their balance sheets for their capital ratios and for their liquidity, as well as the recent deterioration in various term funding markets, might well lead banks to tighten the availability of credit to households and firms. Tighter credit conditions were likely to weigh particularly on residential investment and to a lesser extent on other components of aggregate demand in coming quarters. Meeting participants also noted that financial market conditions, while seeming to have improved somewhat in the most recent days, were still fragile and that further adverse credit market developments could well increase the downside risks to the economy. Even after market volatility subsided and the recent strains eased, risk spreads probably would be wider and credit terms tighter than they had been a few months ago. Although these developments would likely be consistent with longer-term financial stability, they were likely to exert some restraint on aggregate demand.

In their discussion of individual sectors of the economy, participants noted that recent data suggested greater weakness in the housing market than had previously been expected. Furthermore, recent financial developments had the potential to deepen further and prolong the downturn in the housing market, as subprime mortgages remained essentially unavailable, little activity was evident in the markets for other nonprime mortgages, and prime jumbo mortgage borrowers faced higher rates and tighter lending standards. The faster pace of foreclosures as subprime mortgage rates reset was also seen as posing a downside risk to the housing market. Nonetheless, participants observed that conforming mortgages remained readily available to creditworthy borrowers and that rates on these mortgages had declined in recent weeks. Moreover, conditions in the jumbo mortgage market were expected to improve gradually over time.

Although employment probably was not as weak as the most recent monthly data had suggested, trend growth in jobs had fallen off even prior to the recent financial market strains, and participants judged that some further slowing of employment growth was likely. Indeed, financial services firms had already announced layoffs, largely reflecting mortgage market developments, the demand for temporary workers appeared to have softened, and the most recent weakening in construction employment was likely to continue for a while. Moreover, if declines in house prices were to damp consumption, that could feed back on employment and income, exerting additional restraint on the demand for housing. Nonetheless, to date, initial claims for unemployment insurance did not indicate a substantial and widespread weakening in labor demand, and labor markets across the country generally remained fairly tight, with several participants citing continued reports of shortages of labor from their contacts in some sectors.

Participants thought that the most likely prospect was for consumer expenditures to continue to expand at a moderate pace on average over coming quarters, supported by growth in employment and income. However, some participants saw indications of a possible weakening of consumer spending. Sales of automobiles and building materials had flagged of late, and survey measures suggested that consumer confidence had been adversely affected by the recent financial market developments. Also, a further tightening of terms for home equity lines of credit and second mortgages seemed possible, which could weigh on consumer spending, especially for consumer durables.

Participants reported that recent financial market developments generally appeared to have had limited effects to date on business capital spending plans and expected that business investment was likely to remain healthy in coming quarters. The access of investment-grade corporate borrowers to credit so far remained unimpeded, and rates on investment-grade bonds had declined in recent weeks. Moreover, participants noted that many capital expenditures were internally financed, making them less sensitive to credit market conditions. Nonetheless, the pace of financing for lower-rated firms--including issuance of both speculative-grade bonds and leveraged loans--had slowed sharply over the summer. Participants also noted that standards and terms for commercial real estate credit reportedly had tightened, and that credit availability for homebuilders could be trimmed going forward. In addition, contacts indicated that business executives in parts of the country had apparently become somewhat more cautious and that some were delaying investment outlays in view of heightened economic and financial uncertainty.

Some participants noted that foreign demand remained robust and net exports appeared strong. Port utilization rates reportedly remained high. Participants discussed the turbulence in foreign financial markets and noted that unusually high precautionary demand for dollar-denominated term funding in Europe had added to strains in U.S. interbank markets and contributed to a wide spread between libor and federal funds rates.

Participants made only modest revisions to their outlook for inflation in the period since the Committee's last regular meeting. Still, they recognized that incoming data on core inflation continued to be favorable, and they generally were a little more confident that the decline in inflation earlier this year would be sustained. Inflation expectations seemed to be contained, and the less robust economic outlook implied somewhat less pressure on resources going forward. Participants nonetheless remained concerned about possible upside risks to inflation. Higher benefit costs, rising unit labor costs more generally, reduced markups, and levels of resource utilization both in the United States and abroad that remained relatively high were all cited as factors that could contribute to inflationary pressures. Inflation risks could be heightened if the dollar were to continue to depreciate significantly.

In the Committee's discussion of policy for the intermeeting period, all members favored an easing of the stance of monetary policy. Members emphasized that because of the recent sharp change in credit market conditions, the incoming data in many cases were of limited value in assessing the likely evolution of economic activity and prices, on which the Committee's policy decision must be based. Members judged that a lowering of the target funds rate was appropriate to help offset the effects of tighter financial conditions on the economic outlook. Without such policy action, members saw a risk that tightening credit conditions and an intensifying housing correction would lead to significant broader weakness in output and employment. Similarly, the impaired functioning of financial markets might persist for some time or possibly worsen, with negative implications for economic activity. In order to help forestall some of the adverse effects on the economy that might otherwise arise, all members agreed that a rate cut of 50 basis points at this meeting was the most prudent course of action. Such a measure should not interfere with an adjustment to more realistic pricing of risk or with the gains and losses that implied for participants in financial markets. With economic growth likely to run below its potential for a while and with incoming inflation data to the favorable side, the easing of policy seemed unlikely to affect adversely the outlook for inflation.

The Committee agreed that the statement to be released after the meeting should indicate that the outlook for economic growth had shifted appreciably since the Committee's last regular meeting but that the 50 basis point easing in policy should help to promote moderate growth over time. They also agreed that the inflation situation seemed to have improved slightly and judged that it was no longer appropriate to indicate that a sustained moderation in inflation pressures had yet to be shown. Nonetheless, all agreed that some inflation risks remained and that the statement should indicate that the Committee would continue to monitor inflation developments carefully. Given the heightened uncertainty about the economic outlook, the Committee decided to refrain from providing an explicit assessment of the balance of risks, as such a characterization could give the mistaken impression that the Committee was more certain about the economic outlook than was in fact the case. Future actions would depend on how economic prospects were affected by evolving market developments and by other factors.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:

"The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee in the immediate future seeks conditions in reserve markets consistent with reducing the federal funds rate to an average of around 4-3/4 percent."

The vote encompassed approval of the text below for inclusion in the statement to be released at 2:15 p.m.:

"Developments in financial markets since the Committee's last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."

Votes for this action: Messrs. Bernanke, Geithner, Evans, Hoenig, Kohn, Kroszner, Mishkin, Poole, Rosengren, and Warsh.

Votes against this action: None.

The Committee then resumed its discussion of monetary policy communication issues. Subsequently, in a joint session of the Federal Open Market Committee and the Board of Governors, Board members and Reserve Bank presidents discussed additional policy options to address strains in money markets. No decisions were made in this session, but it was agreed that policymakers should continue to consider such options carefully.

It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, October 30-31, 2007.

The meeting adjourned at 3:55 p.m.

Notation Vote

By notation vote completed on August 27, 2007, the Committee unanimously approved the minutes of the FOMC meeting held on August 7, 2007.

Conference Calls

On August 10, 2007, the Committee reviewed developments in money and credit markets, where strains had worsened in the days since its last meeting. Participants discussed the condition of domestic and foreign financial markets, the Open Market Desk's approach to open market operations, possible adjustments to the discount rate, and the statement to be issued immediately after the conference call.

On August 16, 2007, the Committee again met by conference call. With financial market conditions having deteriorated further, meeting participants discussed the potential usefulness of various policy responses. The discussion focused primarily on changes associated with the discount window that would be directed at improving the functioning of the money markets. Most participants expressed strong support for taking such steps, although some concern was noted about the likely effectiveness of these measures and one participant also questioned their appropriateness. In light of the risks posed to the economic outlook by the tighter credit conditions and the increased uncertainty in financial markets, the Committee felt that the downside risks to growth had increased appreciably, but that a change in the federal funds rate target was not yet warranted. However, the situation bore close watching.

At the conclusion of the discussion, the Committee voted to approve the text below to be released the following morning:

"Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets."

Votes for: Messrs. Bernanke, Geithner, Fisher, Hoenig, Kohn, Kroszner, Mishkin, Moskow, Rosengren, and Warsh.

Votes against: None.

Mr. Fisher voted as alternate member.

Sunday, October 07, 2007

Robert Rubin, a former U.S. Treasury secretary

"This was sudden and steep," said Robert Druskin, Citigroup's chief operating officer, referring to the market downturn. "We had to make sure that all the parts of the company were on the same page."

As the weeks wore on, Citigroup's problems grew more serious.

Prices of subprime mortgage bonds and other complex securities were deteriorating rapidly, sweeping up Citigroup and most of its competitors into a financial crisis.

On Aug. 8, a day after the U.S. Federal Reserve Board decided against lowering interest rates, Rubin made a phone call to Ben Bernanke, the Fed chairman, to compliment him on the decision, according to a person familiar with the call.

Although Rubin's interactions with U.S. regulators have drawn scrutiny in the past, this person said that Rubin acted "on his own behalf and not on behalf of Citigroup." This person also said Rubin made the call out of concern that a rate cut might encourage reckless behavior on Wall Street.

As Citigroup's longtime bond-trading engine continued to sputter, its lending units faced swaths of souring mortgages. The bank was on the hook for billions of dollars' worth of huge buyout loans that few investors wanted, and its core consumer banking business was strained.

It also became increasingly clear that Prince, for the fifth time since taking the reins as chief executive, would have to disclose a major problem to his board.

Last Monday, the dimensions of the bad news became public: Citigroup warned that it planned to take a $5.9 billion write-down in the third quarter, a move that would cause its profit to plunge about 60 percent.

click on the heading for the rest of the article

Saturday, October 06, 2007

By Lisa Twaronite, MarketWatch

The Federal Reserve's decision last month to cut interest rates by a larger-than-expected half-percent point sent the already-weakening greenback to an all-time record low against a basket of six major currencies. In the third quarter, the euro appreciated more than 5% against the dollar, most of the gains coming in September alone.

'Even though the typical person isn't immediately affected, the U.S. economy is less well off.' — Howard Chernick, economist

Weakness in the dollar means prices of imported goods, particularly oil, will go up, raising the risk of inflation. American consumers will be paying more soon, with the looming threat of paying even more later on.

"The inflation risk from higher import prices will be the dominant initial effect," said Howard Chernick, an economics professor at Hunter College in New York. "The most immediate effect is imports denominated in dollars -- mainly oil. We already saw a spike in oil prices. So a bit down the line, that's 10 to 15 cents more per gallon of gas at the pump."

it could also make funding those imbalances more difficult. The U.S. has to attract billions of dollars a day from foreign investors, and a weakening currency makes dollar-based assets less attractive because of the consequences it can have on their long-term value.

Friday, October 05, 2007


Bond Ticker

11:42 am - Pasted By Payrolls : The market got spanked on the (mildly) better-than-expected number that along with back end revisions smacked off bonds harder than expected. The number was hardly off the charts, but , anything on the plus side, anything, was going to send bonds offered. But this is ridiculous. The longer end is getting crushed with the inflammation of inflation expectations while Monday-morning quarterbacking on the Fed is causing the market to rethink future rate moves. The curve has been sloped steeper with the 2-10-yr yield spread now 55.9. Payrolls were up as were revisions to last month & hourly earnings. The dollar flew higher & then got blown out of the sky as euro bids firmed up & ran the pants off the shorts. Stops blew out above 1.4150 & the euro has consolidated since. Against the yen, the buck shot above range highs of 116.7500 but has been offered since hitting 117.2500. Spot gold is up a bit at 738.65 (+0.65) while crude is off at 80.95 (-0.48). Oh, BTW, early close in financials.

11:40 am - Ratings Action :
Marriott was cut to BBB from BBB+ by S&P.

11:10 am - Agency Action :
Freddie Mac will sell $3B of 3-month bills & $2B of 6-months on Tues.

11:06 am - Fed Stuff : The Fed may hold in on Halloween, but it seems unlikely they will not cut again. The "stocks are getting ahead of themselves ( says a long-term Fed watcher). There is no" guarantee they will be cutting again. In fact, the fact that they went bigger than expected last go (50bp) is an indicator that they may be on hold to see "how or if it work.s"

10:22 am - Thar She Goes : The 10-yr futures contract was slammed lower on the 4th failed attempt to get through 50% retracement of the Sep 10-20 run lower, or maybe it was the payrolls report. Either way the market is well down with short-term trendline support around 109-07 getting creamed. Currently the 50-day sma at 108-27 is propping up prices. The direction looks clearer now though, as intermediate trend lows of 108-12+ should be tested in the not too distant future. In the meantime, the market will likely consolidate these losses with a close down here at 108-27 bearish indeed. Oh, & daily momentum's pointing down again, so that can't be good.

Wednesday, October 03, 2007

UPDATE 2-Fed rate cuts don't tie China PBOC's hands - Zhou

By Judy Hua and Alison Leung

HONG KONG, Sept 21 (Reuters) - China will set monetary policy according to the needs of its economy and will not let itself be boxed in by a narrowing gap between Chinese and U.S. interest rates, central bank governor Zhou Xiaochuan said on Friday.

His comments were fresh confirmation that the People's Bank of China (PBOC), in order to curb inflation and get real deposit rates back into positive territory, is prepared to run the risk of attracting capital inflows betting on a stronger yuan.

"China has a large-sized economy and we would very much emphasise the domestic economic situation, such as domestic CPI, investment and consumption, in considering our interest rate policy," Zhou told a conference in Hong Kong.

The Federal Reserve cut interest rates by half a point on Tuesday and is expected to reduce them further.

The PBOC, by contrast, has raised rates five times so far this year -- most recently a week ago -- and economists confidently expect one more increase before the end of the year.

In the process, the premium of U.S. rates over Chinese rates has shrunk to about 1.5 percentage points.

After China depegged the yuan from the U.S. dollar in July 2005, the PBOC maintained a gap of 3 percentage points or more to make it expensive for speculators to borrow dollars and bet on a rise in the Chinese currency.

Wu Xiaoling, Zhou's deputy, said this month that the PBOC had given up maintaining a certain rate gap because money kept coming into China in any case, to chase gains in its red-hot asset markets.

Still, China's capital controls form a barrier to inflows, and Zhou said it was because the yuan was not fully convertible that China did not feel too constrained by the rate gap in setting monetary policy.

Although China has been cautiously relaxing its capital controls, Zhou said there was no timetable for making the currency fully convertible.


The PBOC's last rate increase followed a rise in annual consumer price inflation to a decade high of 6.5 percent in August.

Although the rise was due entirely to a spike in the price of pork and other food items, the PBOC has expressed concern about a deterioration in inflationary expectations.

It is also worried that savers, with the real value of their deposits shrinking, have an incentive to take their cash out of the bank and pour it into stocks and property.

The Shanghai stock market (.SSEC: Quote, Profile, Research) has doubled this year, while property prices nationwide rose 8.2 percent in the year to August and are increasing much faster in places such as Shenzhen.

Although the central bank was quite concerned about asset prices, Zhou said that was more of an issue for the China Securities Regulatory Commission.

"We'll keep an eye on asset prices, but we can't focus too much on that," he said.

Most central bankers take the same view that, because it is impossible to know at the time whether or not a market is in a bubble, monetary policy should not try to target asset prices.

Zhou said China still had a lot of work to do to reduce the dominant role that banks play in China's financial system.

Beefing up the corporate bond market as well as the pension, mutual fund and insurance industries would help to improve the allocation of capital and hence the efficiency of investment.

A lively debate was also taking place in China about encouraging private equity funds, Zhou added.

"We think that the first important thing is to develop faster our capital market," he said.

David Dollar, the World Bank's chief representative in China, urged Beijing to make it easier for private firms to list on the stock market and to issue bonds.

"Banks in China are performing better but there's been surprisingly little reform in banks' behaviour: They are still making traditional collateral-based loans to large firms. A lot of small firms are not getting access to lending," Dollar told the conference.

He said China's 700 listed firms generated only 15 percent of China's corporate profits, so 85 percent of the economy was not connected to the stock market at all.

"Domestic private firms are at the heart of the Chinese economy and their links to financial markets at the moment are somewhat weak," said Dollar, who also expressed concern at the high price-earning ratios of those companies that are listed. (Additional reporting by Susan Fenton)

Monday, October 01, 2007

Citi Bank has a 60% earnings drop despite record Muni Sales

By Anastasija Johnson

NEW YORK, Oct 1 (Reuters) - U.S. municipal bond issuance rose 21 percent in the first nine months of this year to $320 billion as both new money and refunding sales increased, Thomson Financial said on Monday.

This issuance was the strongest year-to-date municipal bond volume since $308.9 billion recorded at the end of the third quarter of 2005, Thomson said in a report.

Tax-exempt bond sales hit an all-time high of $408 billion in 2005 as state and local governments rushed to refinance their outstanding debt at lower interest rates.

If the current growth rate persists, municipal bond issuance could break that record.

"Assuming the next three months show volume at the same rate, 2007 will finish at $419 billion," research firm Municipal Market Advisors said in a report...

Citigroup (C.N: Quote, Profile, Research) remained first $45 billion in sales year-to-date, Thomson said. Merrill Lynch (MER.N: Quote, Profile, Research) was second with $38.6 billion, followed by UBS Securities LLC (UBSN.VX: Quote, Profile, Research), which senior managed $26.8 billion of muni deals year-to-date.


By Mark McSherry

NEW YORK, Oct 1 (Reuters) - The warning from Citigroup Inc (C.N: Quote, Profile, Research) on Monday that its quarterly earnings will drop 60 percent could be a sign of things to come from U.S. banks and brokerages.

Citigroup blamed its troubles on $5.9 billion in losses and write-downs from subprime and leveraged loan difficulties, fixed income trading, and weakness in its consumer business.

The warning from the largest U.S. bank by market value came on the same day that Swiss bank UBS AG (UBSN.VX: Quote, Profile, Research) disclosed $3.4 billion in losses, driven by some of the same factors.

Also on Monday, UBS's chief domestic rival Credit Suisse Group (CSGN.VX: Quote, Profile, Research) said its third quarter results would be hurt by market turmoil as the credit crisis struck at the heart of the global financial industry.

Analysts said a number of other banks are likely to issue similar profit warnings.

Interesting. The largest bond trader blames poor trading pratices of fix income as a part of its problem. In other words the most experienced bond trader miss judge the direction rates would go. Maybe the Federal reserve should instead of trying to bail out the banks with reckless and meaningless cuts, they should instead help educate them on the direction long term rates will go because of the economics of our world economy. Once upon a time bankers were economist. now that they are nothing more than salesmen they are going to need to be eductate with strong words from the Federal Reserve.

Sunday, September 30, 2007

Bush signs bill to halt shutdown

By Jennifer Loven


WASHINGTON -- President Bush on Saturday signed a bill to prevent a government shutdown but not without complaint...

The bills are tied up because Democrats want to add $23 billion for domestic programs to Bush's $933 billion request for the approximately one-third of the federal budget funded by the yearly spending bills. Bush has threatened vetoes on most of the bills, eager to re-establish his party's reputation as the place to go for fiscal discipline.

Democrats say their spending add-ons are relatively modest given the overall size of the budget and in comparison with Bush's pending $189 billion request for Pentagon operations in Iraq and Afghanistan in 2008.

Surprise surprise debt has just been expanded by a sizeable percent following the release from the Treasury of our record deficit. The yearly budget is over $4,000 per year per working tax payer. Plus we owe on our debt, state income taxes, state sales tax, local property tax. When markets open will the world say "now is the time to buy US debt because the USA increase cpntrol of it will mean there is less to buy tomorrow", or will the world pass on our debt with current return and demand to recieve more money in return for trusting USA's fiscal sense of responsibility?

Not only will your average American pay much more in taxes. He will pay much more for his debt, including his mortgage.

Federal budget surplus balloons to $14B

A booming Canadian economy generated such big tax revenues this past year that the federal budget surplus approached $14 billion, Prime Minister Stephen Harper said Thursday...

So we have Europe concern about inflation and the means to fight it. Canada has a budget surplus. Think real hard what direction our long term rates going in the United States in this world economy.

Saturday, September 29, 2007

Allan Sloan, GETS IT

Give this man a Blue Ribbon. He gets it. Wow has he been reading my blog, or is there some crazy bastard out there that thinks like me?

Investors to Fed: Thanks for nothing
The reckless are getting relief from Bernanke while the prudent are paying the price, argues Fortune's Allan Sloan.

Even though the Fed's stated reason for cutting short-term interest rates by half a point was to help keep the economy from falling into recession, anyone who's been paying attention knows that a major motivation - if not the major motivation - was to try to calm the turbulence that has been roiling the markets since August....

The stock market, which had been begging for a bailout and hasn't ever seen an interest rate cut that it didn't like, responded to the Fed's half-pointer by running prices up. Ben Bernanke, the Street decided, is just what the doctor ordered...

However, if you look at the financial markets' overall reaction to the Fed move - not at just the stock market's reaction - you realize that as a result of the cut, those of us who keep score in dollars and didn't need to be bailed out are less wealthy than we were in terms of anything other than our home currency....

Because the rate cut contributed heavily to the dollar's recent sharp drop in the currency markets - parity with the Canadian dollar, for God's sake! - and to the price spike in hard assets like gold, silver, copper, and oil. So our wealth, relative to these other things, has diminished...

Even though the Fed has cut short-term rates, long-term rates, which it doesn't control, have risen in reaction to the cut. So whatever economic benefits may flow from lower shortterm rates will be partly offset by the rise in long rates, which are at least as important to the economy as short rates...

Finally, consider this. Even though Bernanke's cut may mean that some junk mortgages will reset at lower rates, the cost of large, high-quality fixed-rate mortgages, which are tied to long rates, will be higher than they'd otherwise be...

Friday, September 28, 2007

Dollar Hits Seventh Consecutive Low

BERLIN (AP) -- The dollar hit another new low Friday as U.S. inflation data reinforced expectations that the Federal Reserve may cut interest rates again.
The 13-nation euro reached $1.4234 in late afternoon European trading -- exceeding its previous peak of $1.4189, reached Thursday. It was the seventh trading day in a row on which the euro broke the record from the previous day. The euro had bought $1.4160 in New York late Thursday.

The euro spiked above $1.42 after the release of data showing that a key measure of inflation in the U.S. eased last month to the slowest pace in 3 1/2 years.

The 1.8 percent rise in core inflation over the past year, which excluded energy and food, was within the Fed's comfort zone for core price increases of between 1 percent and 2 percent, meaning they could cut again.

The data also showed that incomes rose by 0.3 percent last month, slightly lower than had been expected.

In other trading, the British pound rose to $2.0353 from $2.0270 in New York late Thursday. The dollar was down to 115.21 Japanese yen from 115.59 yen.

The dollar has been sliding since the Fed last week cut interest rates by a larger-than-expected half percentage point. Since then, disappointing U.S. economic data have stoked expectations that another rate cut could follow.

Lower interest rates, used to jump-start an economy, can weaken a currency as investors transfer funds to countries where their deposits and fixed-income investments bring higher returns.

Higher interest rates are used to combat inflation. On Friday, the European Union's statistical agency estimated that inflation in the euro zone would hit 2.1 percent in September -- jumping from 1.7 percent in August, and putting inflation above the ECB's guideline of just under 2 percent.

That could lead market participants to expect that the ECB might go on raising interest rates instead of pausing amid market turmoil from the U.S. housing credit crisis.

Longer term, the U.S. has been running large trade and budget deficits for years -- factors that tend to undermine a country's currency in the long term, unless they are offset by foreigners willingness to invest their money in the United States.

Consequences of the dollar's fall include upward pressure on inflation from higher prices for imported food and goods, and less purchasing power for Americans traveling or living abroad. On the other hand, a cheaper dollar makes U.S. exporters' wares more competitive on a price basis overseas.

European Inflation Expected to Jump

BRUSSELS, Belgium (AP) -- Inflation in the 13 nations that use the euro is expected to jump to 2.1 percent for September, according to preliminary figures released by the European Union's statistical agency on Friday.

The news added to worries that Europe is heading for an economic slowdown.

Eurostat's estimate did not give reasons for the rise from 1.7 percent in August, an increase that puts inflation above the European Central Bank's guideline of just under 2 percent.

A final figure is expected to be issued next month.

Germany's Federal Statistics Office on Thursday released preliminary figures which showed the consumer price index for Europe's biggest economy is expected to rise 2.5 percent in September.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia told a meeting in Barcelona that the recent financial turmoil, including the high value of the euro against the U.S. dollar and the credit market turmoil in the United States, has increased the risk of growth slowing.

Almunia expressed worries that rising costs could dissuade investments and consumer spending.

"There are now more negative risks," Almunia said. "The key factor will be the impact (of the financial crisis) on confidence."

He said, however, that most forecasts are for world economic growth of over 4 percent next year.

Almunia earlier this month raised the EU's forecast for inflation for the full year, up 0.1 percentage points to 2 percent.

Almunia also said concerns are growing over the dropping U.S. dollar. He told Italian daily Il Sole 24 Ore in an interview published Friday that the dollar's decline is "worrying," adding the U.S. should assume more responsibility for the "imbalances in the global economy."

"Nobody should expect that we will remain passive if the consequences of those imbalances are dumped on the euro-zone economies alone," he said.

The dollar's declining value makes American exports more competitive overseas, but could make European products more expensive in the United States.

Almunia appealed to euro-group countries to ensure they speak with one voice in communicating their views with the ECB.

EU officials have warned that they were unsure of how well the euro economy could continue to grow amid a credit crisis triggered by problems in the U.S. housing market that has raised borrowing costs.

The European Commission said that Europe and the world economy had been in good shape until the August turmoil, when banks became reluctant to lend amid fears of spiraling losses from the U.S. housing loan market.


Thursday, September 27, 2007

Another New Low for Dollar

BERLIN (AP) -- The dollar reached yet another low Thursday, its sixth consecutive trading day searching for, and finding, a new bottom against the euro.

The dollar has hit a series of new lows against the euro since the U.S. Federal Reserve cut interest rates by a larger-than-expected half percentage point last week. Disappointing U.S. economic data have underlined the possibility of more cuts.

Lower interest rates, used to jump-start an economy, can weaken a currency as investors transfer funds to countries where their deposits and fixed-income investments bring higher returns.

Which came first? The Chicken or the egg? It's economics 101 to say that lowering interest rates devalues the dollar. Straight from the text book. But what is really going on here? I predict the dollar would continue to crash - IT DID and IT IS. I predicted the rates on the 10 year notes would go up - THEY DID. I predict mortgage rates would go up. THEY HAVE. All these predicts were accurately made not following the Federal Reserves Statements. They were made following the US Treasury's statements - WE ARE A BROKE COUNTRY thanks to George Bush.

On October 1 something has to happen. Either the debt ceiling will be raised - WHICH MEANS MORE MONEY WILL BE PRINTED IN THE FORM OF TEN YEAR NOTES. THE FLOOD OF NEW NOTES WILL CREATE A SPIKE IN INTEREST RATES. Taxes will be raised. Or spending will be cut.

This is our government for the people by the people. We all know what the shorted sighted lynch mob will only accept.

I believe the devaluation of the dollar is the world's way of saying. "We are not prepare to further our investment in the US Dollar by buying the ten year notes at the current interest rates. We have a serious problem on our hands.

Today I shorted American Express AXP for $59.55 per share. Rates aren't going down - they are going up. A broken country can't change what needs to be change. Rising rates are going to escalate the default rate on debts. I'm staying away from the eye of the storm - home lenders. Who knows what nonsense promises willl be told to America on October 1.

Monday, September 24, 2007

I Rest My Case

When the rest of the world was predicting the Feds would cause mortgage rates to grow into double digits, I alone said they would fall. I was right. click on this blog title to see for yourself.

Got news for you, I am right now too. Mortgage rates are exploding despite the SURPRISING level of cut by the federal reserve. The chart shows when the US TREASURY announced the record deficit. That can be seen by when the rates started to rise. The Federal Reserve shocked the country with it's large rate cut. That marks the next decline in rates. The next rally in mortgage rates occurred on the US TREASURY announcement that on October 1, 2007 the USA will slam into it's debt ceiling.

George Bush bankrupt the country. Reality will prevail over the Wizard of OZ at the Federal Reserve.

Bush has made some strides. Just as we bankrupt Russia during the cold war. Bush now realize that our war is breaking us. Following the announcement by the US Treasury he has announced troop reductions. Is it enough? Is it to late? Corporations are making records earnings and paying record taxes. The people are paying record taxes. The military looks like it will be reduced. Can we be saved?

If you want to know our potential future, study the economic history of Germany that led to the empowerment of Adolf Hitler.

Friday, September 21, 2007

Dollar Tumbles to New Low Vs. the Euro

NEW YORK (AP) -- The dollar hit a new low against the seemingly unstoppable euro Friday as the 13-nation currency broke through $1.41. The euro's ascension renewed calls from French President Nicolas Sarkozy for the European Central Bank to follow the Federal Reserve and cut interest rates, which would help keep French exports competitive....

The currency of the 13 euro nations, which have more than 317 million residents and account for more than 15 percent of global gross domestic product, surged as high as $1.4119 before falling back to $1.4083 by late afternoon, above the $1.4076 it bought in New York on Thursday...

The U.S. dollar fell further against the Canadian dollar after reaching parity for the first time since 1976 on Thursday. One Canadian dollar bought $1.0068 in U.S. currency at its highest point Friday before edging down to 99.95 U.S. cents in late New York trading, barely beating 99.93 U.S. cents late Thursday...

I'm so sick of these "the glass is half full" liberal dickheads. Report the truth. We are screwed. Energy is an imported good. Oil is not going up in price. The dollar is crashing, so more dollars are needed to buy oil. The exportation of our debt is not more competitive. When people buy our debt they convert their currency to our toilet paper. The return on the debt has to be large enough to over come the lost in the the dollar, justify the time your money is tied up, plus account for the currency risk. If a German can get 4% at home he will want 10% if his money is invested in America. If an American can get 5% at home, he is better off taking 3% in England.

Look at the real impact the crashing dollar has had in interest rates. THEY ARE RISING DESPITE THE SURPRISING LEVEL OF THE FEDERAL RESERVE CUT!!!!!

On October 1, 2007 Bush will either have to raise the National debt level, raise taxes, or cut spending. Who will buy our debt? What return will they demand?

The crash of the dollar will continue.

Thursday, September 20, 2007

Canadian Dollar at Parity With Greenback

NEW YORK (AP) -- For the first time since Gerald Ford was president, the loonie can buy as much as the greenback. The U.S. dollar's recent decline against the Canadian dollar, the euro, and even the Indian rupee, means Americans will pay more for imports and trips to Paris, Rome, Bangalore and Toronto...

How embarrassing. There is nothing dumber or lazier than a Canuck. And now their currency is stronger than ours. When the lowest form of life catches up to you. You are finished.

Oil will cost more in terms of US dollars, driving all cost of US productions up. Why won't the news report the truth?

Wednesday, September 19, 2007

Mortgage Rates Continue their RISE

Following the busted Bush budget spending spree that the US TReasury had to report on for the previous month intrest rates have ben RISING not falling despite the FEDERAL RESERVES attempt to tell the Tin Man everything will be OK.

Congress Asked to Lift Debt Limit

Congress Asked to Lift Debt Limit
Wednesday September 19, 10:25 am ET
By Martin Crutsinger, AP Economics Writer
Paulson Tells Congress the Current Debt Ceiling Will Be Hit on Oct. 1

WASHINGTON (AP) -- Treasury Secretary Henry Paulson told Congress on Wednesday that the federal government will hit the current debt ceiling on Oct. 1.
He urged quick action to increase the limit, saying it was essential to protect the "full faith and credit" of the country, especially at a time of financial market turmoil.

The current debt limit is $8.965 trillion. Unless Congress votes to raise that ceiling, the country would be unable to borrow more money to keep the government operating and to pay debt obligations coming due. The United States has never defaulted on a debt payment but the decision on whether to raise the debt ceiling often sparks a prolonged political battle in Congress.

In his letter to congressional leaders, Paulson said that according to data now available, the Treasury expects to hit the current debt ceiling on Oct. 1 -- the first day of the new federal budget year. However, that projection does not take into account maneuvers the government often has to employ of withdrawing investments from certain trust funds to create room for extra borrowing until Congress finally approves a debt increase.

"The full faith and credit of the United States, to which we all remain committed, is a national asset and a cornerstone of the global financial system," Paulson said in his letter. "In light of current developments in financial markets, which would be exacerbated by uncertainty in the Treasuries market, I urge the Senate to pass the legislation reported by the Finance Committee to increase the debt limit as soon as possible."

The Senate Finance Committee earlier this month approved increasing the limit on the national debt to $9.82 trillion. That boost of $850 billion would be the fifth increase in the government's borrowing limit since President Bush took office in 2001.

The national debt is the total accumulation of annual budget deficits, which must be financed with borrowed money.

Democrats blame Bush's tax cuts and the war in Iraq for pushing the debt to record levels. Republicans defend the tax cuts, saying the deficit is now on a downward trajectory in part because of the economic stimulus provided by the tax cuts.

The House approved an increase in the debt limit in May when it adopted the annual congressional budget resolution, but the full Senate has yet to act to raise the limit.

Tuesday, September 18, 2007

Interest rates RISE

Mortgage rates which are tied to the Ten Year notes are now 10 basis points higher than they were a week ago. Theten year notes rose today to yeild a net rate of 4.48%

When the drunken idiots sober up look for a market correction

Saturday, September 15, 2007

Greenspan Faults Bush Over Spending

WASHINGTON (AP) -- Former Federal Reserve Chairman Alan Greenspan, in his upcoming book, bashes President Bush for not responsibly handling the nation's spending and racking up big budget deficits...

"My biggest frustration remained the president's unwillingness to wield his veto against out-of-control spending," Greenspan wrote.

Bush took office in 2001, the last time the government produced a budget surplus. Every year after that, the government under Bush has been in the red. In 2004, the deficit swelled to a record $413 billion.

"The Republicans in Congress lost their way," Greenspan wrote. "They swapped principle for power. They ended up with neither. They deserved to lose."

Wow!!! Just recently I stated it would not surprise me if the Department of Treasury kills Bush. Now we have the former head of the Federal Reserve bashing Bush. The massive amount of treasury notes that need to be printed to cover the Bush deficit is about to send borrowing cost through the roof at a time we need to lower them. It don't matter what the intra-bank loan rate is.

click on the blog heading for the rest of the article

2:15 pm on Tuesday the Stock Market will CRASH

Real rates have gone last week up as shown by the enclosed chart of the return on the 10 year notes. Mortgage rates also stop their decline and went up a few basis points.

The Federal Reserve cannot fight the reality of the Bush Dollar. Rather than acknowledge their limited power over the real world scenario the Department of Treasury has to deal with in balance a Bush budget, the Federal Reserve is going to stun the market so that they get the credit for the rising cost of money.


Thursday, September 13, 2007

All-time monthly record of $284 Billion Budget Deficit

WASHINGTON (Thomson Financial) - The Labor Day holiday's place in the calendar this year caused a 117 bln usd record August budget deficit, the Treasury said today, as the US government spent more money in one month than it ever had before.

With September 1 on a Saturday and Labor Day on the following Monday, some 44 bln usd of Social Security, Medicare and other payments for September were paid on the last Friday of August according to the Treasury.

That brought total August outlays to the all-time monthly record of 284 bln usd, up 30 pct from a year before. August revenues were up 8 pct to 167 bln usd, which was a record for that particular month.

The 117 bln usd deficit was also the highest for any August and up 81 pct from the same month last year. Analysts had been forecasting a 75.0 bln usd monthly deficit. However, a corresponding spending offset and the usual quarterly tax payments should produce a large surplus for September.

For fiscal year 2007 through August, the federal deficit was down 10 pct to 274 bln usd. Revenues through August were up 7 pct to 2.282 trln usd and spending up 5 pct to 2.557 trln usd. dem/wash/jlc COPYRIGHT Copyright AFX News Limited 2007. All rights reserved.

That is just fucked up. The government collected 8% more and still ran up a record deficit. It wouldn't surprise me if the US Treasury kills George Bush so that we can have a Republican run the country. Can you spot the predict 2:00 dip in the REITS. I day traded a 2.5% profit around this predictable event. Good luck finding a news article on the US Treasury press release. So here is where we are at. If you believe the Treasury that September will be a surplus, then so what about today. What does the Federal Reserve believe? The truth is the Treasury controls the interest rates based on hard real decisions. If the country is broke, the Treasury has to flood the market with notes at the next auction. Supply and demand will drive up the rates on the ten year note and thus drive up all cost of borrowing in the US. What the Federal Reserve does is chase the reality and pretend they are in control of it. The Federal Reserve has become our Wizard of OZ. As long as we believe in the power of the Wizard of OZ American can sleep soundly at night. What if the Federal Reserve totally guts the intra-bank rate and at the same time the ten year note rates go up? The Wizard of OZ would die much like Santa Clause has died when we all grew up. What choice does the Wizard have? He will cut but disappoint. He will not give a strong rhetoric of future cuts. The stock markets will react and the press will say that a deeper cut was factor into the markets. This is why rates went up. Once you recognize the Wizard of OZ as being a powerless fool, his reactions are easy to predict. BE PREPARED.

The Markets Dirty Little Secerate

At 2:00 PM the US Treasury reports on the budget. If Spending is in control and tax revenues look good fewer ten year notes will have to be auction off to cover the budget. Supply and demand will drive down the real interest rate. Of course if the Bush spending machine is out of control, the unemployed people are not paying taxes and coroporate America has nothing to chip in. The market will be flooded with an over supply of ten year notes.

People prefer to believe in the power of Wizard of OZ over reality. Even oday the news is reporting on whether the FEDs lower rates or not on September 18.

Watch. At 2:00 pm the markets are gonna move one deriction or the other. The deep pockets won't wait for a press release.

Click on the heading for the US Treasury website.

The Mortgage Rate Free Fall Has Begun

Just as predicted the mortgage rates have accelerated their decline. Recently the REIT have begun refinancing at rates around 6%. When an industry with billions in debts is able to refinance for 5 to 10% less and raise rents for 5% more. Good times lie ahead.

Hanging tight on my REIT

The wild card is the US Dollar. With it's collasp it makes no sense for the world to buy the ten year notes. Ultimitly it is the US Treasury that control's the interest rates and cost of debt - not the Federal Reserve.

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